Tax the rich, Obama says; GOP calls it class warfare

WASHINGTON (AP) — Drawing clear battle lines for next year’s elections, a combative President Barack Obama on Monday demanded that the richest Americans pay higher taxes to help cut soaring U.S. deficits by more than $3 trillion. He promised to veto any effort by congressional Republicans to cut Medicare benefits for the elderly without raising taxes as well.

Obama’s speech marked a new, confrontational stance toward Republicans after months of cooperation that many Democrats complained produced too many concessions. While the plan stands little chance of passing Congress, its populist pitch is one that the White House believes the public can support.

The president’s proposal, which he challenged Congress to approve, would predominantly hit upper-income taxpayers and would also target tax loopholes and subsidies used by many larger corporations. It would spare retirees from any changes in Social Security, and it would direct most of the cuts in Medicare spending to health care providers, not beneficiaries.

Benefit programs wouldn’t be unscathed. Obama’s plan would reduce spending for those, including Medicare and Medicaid, by $580 billion. But with Republicans calling for massive cuts in entitlement programs, Obama said he would veto any legislation that cut Medicare benefits without raising new revenue.

His plan also would count savings of $1 trillion over 10 years from the withdrawal of U.S. troops from Iraq and Afghanistan.

The deficit-reduction plan represents Obama’s longer-term follow-up to the $447 billion in tax cuts and new public works spending that he has proposed as a short-term measure to stimulate the economy. The new proposal also inserts the president’s voice into the legislative discussions of a joint congressional “supercommittee” charged with recommending deficit reductions of up to $1.5 trillion.

Defending his emphasis on new taxes rather than only spending reductions, Obama said: “We can’t just cut our way out of this hole.”

The Republican reaction was swift and bluntly dismissive.

“Veto threats, a massive tax hike, phantom savings and punting on entitlement reform is not a recipe for economic or job growth—or even meaningful deficit reduction,” said Senate Republican leader Mitch McConnell. “The good news is that the Joint Committee is taking this issue far more seriously than the White House.”

The president announced his deficit reduction plan in a 20-minute speech from the Rose Garden at the White House. But even as he called for Congress to act and tackle the nation’s escalating debt, he gave greater urgency to his separate, short-term jobs proposal. “I’m ready to sign a bill,” he said. “I’ve got the pens all ready.”

Indeed, the White House is determined not to let the president get trapped in a debate over austerity measures at a time that the economy is sputtering and unemployment doesn’t appear to be budging from 9.1 percent.

Still, in calling for sizable tax revenue, Obama gave the congressional joint committee a choice: It could generate $1.5 trillion in new revenues through an overhaul of the tax code, or it could adopt his recommendations, most of them ideas recycled from his previous budget proposals, which were largely ignored by Congress. They include tax increases on high-income families, oil and gas companies and U.S.-based corporations that earn profits overseas.

Either way, Obama is unlikely to get his way. The committee would be hard pressed to undertake a wholesale restructuring of the tax code by its Thanksgiving deadline. And the president’s own proposals have little chance of making their way out of Congress intact.

But with Bush-era tax cuts set to expire at the end of 2012 and with deep defense cuts scheduled to take effect in 2013 if the joint committee fails to act, Obama set down clear lines for next year’s elections. And by threatening to veto Medicare benefit cuts that aren’t paired with tax increases, he raised the pressure on the committee to include revenues in its plan.

“I will not support any plan that puts all the burden for closing our deficit on ordinary Americans,” he said.

The plan represents Obama’s opening bid in the debate. Administration officials say he is not taking other deficit reduction measures, including a gradual increase in the eligibility age for Medicare from 65 to 67, off the table. In deficit reduction negotiations in July with Boehner that centered on raising the nation’s borrowing capacity, Obama had agreed to such an age increase. But other Democrats objected loudly and said it would neutralize their criticism of a Republican plan to overhaul Medicare.

The core of the president’s plan totals just over $2 trillion in deficit reduction over 10 years. It would let Bush-era tax cuts for upper income earners expire, limit deductions for wealthier filers and close loopholes and end some corporate tax breaks. It also would trim mandatory programs, including Medicare. And it would target subsidies for farmers and retirement benefits for federal employees.

Officials cast Obama’s plan as his vision for deficit reduction, and distinguished it from the negotiations he had with Boehner in July as Obama sought to avoid a government default. Those talks failed, but resulted in an agreement to trim $1 trillion from government programs.

Democrats, who had warily watched as Obama negotiated with Boehner, cheered the president’s tough talk on Monday.

“The president put down a marker today, and he did it in terms more forceful than we have seen from him before,” said Sen. Chuck Schumer, D-N.Y.

Key features of Obama’s plan:

• $1.5 trillion in new revenue, which would include about $800 billion over 10 years from repealing the Bush-era tax rates for couples making more than $250,000. It also would place limits on deductions for wealthy filers and end certain corporate loopholes and subsidies for oil and gas companies.

• $580 billion in cuts in mandatory benefit programs, including $248 billion in Medicare and $72 billion in Medicaid and other health programs. Other mandatory benefit programs include farm subsidies and federal employee retirement benefits. The plan would reduce federal workers’ paychecks by 1.2 percent over three years, saving the government about $21 billion over 10 years.

• $430 billion in savings from lower interest payment on the national debt.

The GOP has ridiculed the war savings as gimmicky, but House Republicans included them in their budget proposal this year and Boehner had agreed to count them as savings during his debt ceiling negotiations with the president this summer.

Administration officials said 90 percent of the $248 billion in 10-year Medicare cuts would be squeezed from service providers such as drug companies, hospitals and nursing homes. Still, starting in 2017, the plan would significantly increase what many seniors pay for premiums, copayments and deductibles. AARP, the lobbying group for older Americans, said it was troubled by some of the proposals but grateful Obama didn’t include an increase in the Medicare eligibility age and cuts to Social Security.

Illustrating Obama’s populist pitch on taxes, he also suggested that Congress establish a minimum tax on taxpayers making $1 million or more in income. The measure — the White House calls it the “Buffett Rule” for billionaire investor Warren Buffett — is designed to prevent millionaires from taking advantage of lower tax rates on investment earnings than what middle-income taxpayers pay on their wages.

On average, however, the wealthiest people in America pay a lot more in taxes than the middle class or the poor, according to the non-partisan Tax Policy Center. This year, households making more than $1 million will pay, on average, 29.1 percent of their income in federal taxes. A household making between $50,000 and $75,000 will pay 15 percent of its income in federal taxes, which includes income taxes and Social Security payroll taxes.

Still, Schumer argued that the issue could have a major political impact.

“The president has a winning hand and he’s going all in,” Schumer said.